Outlook for the economy may not be so bad after all... business optimism grows and retailers boosted by bumper online sales

Business leaders went some way to allay fears of a triple-dip recession today after a survey revealed firms have grown more optimistic over Britain’s economic outlook.

Meanwhile a second survey of retailers revealed that although they still face a very challenging environment, Christmas sales were ‘not a disaster’, boosted as they were by record online sales.

Trading reports from Debenhams, House of Fraser, New Look and John Lewis have shown that some retailers managed to defy the high street gloom with bumper Christmas sales. Others, including Morrisons, however, have been hit by restrained high street spending.

Mixed bag: Trading on the high street remained difficult but online sales continued to perform well

The poll of business leaders in the British Chambers of Commerce’s (BCC) quarterly survey also pointed to stronger output from the manufacturing and service sectors in the final quarter of 2012.

This is more optimistic than City expectations. The Bank of England has predicted the economy will contract in the fourth quarter of 2012 which, if combined with a further decline in the current period would result in a return to recession.

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Gloomy surveys of the construction and services sectors last week by the CIPS and Markit also heightened concerns that a fresh period of decline is in store for the UK.

But BCC chief economist David Kern said fears the economy had contracted in the fourth quarter were not supported by the survey, which showed business confidence rose significantly in this period.

He said: ‘We expect modest GDP recovery in 2013 and 2014, but it is clear that UK growth remains inadequate and must be boosted further.

‘The economic environment will remain challenging, both globally and in the UK, with a prolonged period of below-trend growth.'

Households have run financial surpluses during the past few years, following a sharp cutback in their spending in 2008 in response to the debts they had built up

BCC director-general John Longworth added that the survey results suggest the economy is ‘making progress, despite the numerous challenges it has faced’.

He added that the ‘culture of Nimbyism’ has prevented many business projects getting off the ground and must be defeated.

The
survey, which covers 7,662 businesses, revealed manufacturing and
services sector balances had improved, but were still well below
pre-recession levels in 2007.

Meanwhile
a survey from the trade body the British Retail Consortium revealed that
trading over the Christmas period was ‘not a cause for celebration but
not a disaster either’.

Although bad weather contributed to a dismal season on the high street, many retailers were saved from what would have been a disastrous Christmas by bumper online sales.

Retail sales were up 0.3 per cent on a like-for-like basis from December 2011, when they were up 2.2 per cent on the preceding year. Taking into account inflation, this amounts to a drop in sales.

Debenhams defied the gloom: The retailer's Jonathan Saunders Edition red coat
was its fastest-selling coat ever after appearing in the 'Christmas
Made Fabulous' TV adverts, while lingerie sales were up 14 per
cent

However online sales grew by 17.8 per cent, the fastest growth since December 2011, when they rose by 18.5 per cent.

Helen
Dickinson, director general of the British Retail Consortium, warned
that total growth for December is only on a par with December 2010, when
severe weather curbed sales.

She added: ‘Online was the stand-out performer, showing its highest rate of growth this year.

Shoppers
are increasingly taking advantage of the convenience that online
shopping offers at every stage of the customer journey, from comparing
prices to reserving and collecting in-store.’

She added that trips to the high street were low this year, but that when shoppers did venture out they tended to spend a lot at one go.

Graph showing export volumes to EU and non-EU countries from 2009 to present. The gap between EU and non-EU exports has grown as turbulence in the eurozone has rocked trade (Source: ONS)

David McCorquodale, head of retail at KPMG, added that conditions will remain tough. ‘January will be a tough month for retailers as consumers face up to their credit card bills after Christmas and it's likely 2013 will bring more of the same challenges,’ he said.

‘While consumer confidence remains low, shoppers will tighten their belts and rein in their spending, making life difficult for the average UK retailer. There will be no boom and it's likely more than a few will go bust.’

Retail chains closed stores at a rate of 32 a day during last year in a dramatic escalation of the crisis turning many urban centres into ghost towns.

A number of household names – Comet, Peacocks, La Senza, Blacks, Game, Clinton Cards, and JJB Sports – all went into administration.

However some retailers have reported they managed to defy the difficult trading conditions on the high street.

Department store Debenhams hailed its
best ever December performance today, with sales in the five weeks to
January 5 up five per cent on a like-for-like basis.

Sales were boosted by heavy
pre-Christmas discounting to attract cost-conscious shoppers, the
downside being that it expects profit margins will have been hit.

High street winners: New Look (left) and House of Fraser (right) bucked the retail malaise

Youth-orientated fashion chain New Look yesterday posted a healthy 3.7 per cent rise in underlying sales for the 14 weeks to December 29, with a 50 per cent boost in online sales on last year.

It was also jingle bells at the tills for House of Fraser which posted a storming 6.3 per cent rise in underlying sales for the six weeks to January 5.

Much of the strong performance was due to a 48 per cent rise in online sales, with fashion and beauty particularly popular.

A report released by the Office for National Statistics today revealed that the squeeze on household incomes experiences during 2010 and 2011 actually eased up slightly in 2012.

However it appears this did not translate into greater spending on the high street as households remain cautious about their prospects and choose not to spend in line with the growth in incomes.

While household spending has risen only modestly in 2012, real household disposable incomes grew by almost two per cent in the first three quarters of the year.

The challenging retail conditions round up another difficult year for the UK economy, which stagnated over all despite peaks and troughs caused by the Diamond Jubilee bank holiday and the London 2012 Olympic and Paralympic Games.

However the ONS attributed the weakness of the economy in 2012 principally to a disappointing foreign trade performance.

Ongoing difficulties in the UK’s main export markets in Europe saw export volumes remain sluggish, particularly in the services sector.